Treasury to rethink planned electricity levy increase

Steep tariff hikes sought by power utility Eskom have prompted Treasury to reconsider the planned increase in the electricity levy announced in the budget and would have netted about R5bn for the fiscus.

It is also unlikely that the special electricity levy intended for electricity intensive users will be imposed as it appears they have in fact been paying the normal levy contrary to fears by Treasury that they were not. A final decision will be made once the data has been verified.

It also emerged during parliamentary briefings by Treasury officials on Tuesday that the Carbon Tax Bill would be submitted to Cabinet ahead of approval for publication for public comments within the next month. The tax is due to commence in about July next year.

The 2c increase in the electricity levy to 5.5c per kWh was intended as a tool to manage the demand for electricity. The proposal was not incorporated into the revenue estimates in the fiscal framework as it was intended as something for the energy "war room" to consider.

"In light of Eskom’s very late application for an additional 10% increase in the electricity tariff and the National Energy Regulator of SA’s decision to consider Eskom’s application only by the end of June 2015, National Treasury is reviewing the impact of the proposed additional 2c/kWh," Treasury deputy director general Ismail Momoniat said in a briefing to Parliament’s standing committee on finance on the 2015 tax proposals.

He said an announcement would be made shortly as to whether the levy increase would go ahead. There was a need for certainty as municipalities were busy preparing their budgets. In terms of Treasury’s thinking the additional 2c/kWh would be reversed when the carbon tax takes effect from mid-2016.

The finance committee also heard that Treasury is to reconsider provisions in the Income Tax Act — introduced last year — which were intended to counter base erosion and profit shifting. The amendments required that if a South African resident company issued shares to pay for the acquisition of shares in a foreign company it would be liable for capital gains tax.

There was an outcry that this anti-avoidance measure was too broad and would affect bona fide commercial transactions and investment.

Treasury also plans to introduce transitional tax measures to cater for the declaration of hedge funds as collective investment schemes from April 1 2015. This restructuring entailed capital gains tax and had other unintended tax consequences, MPs were told.

The tax treatment of the transfer of beneficial ownership of the collateral transferred in a securities lending arrangement would also be reviewed to reduce any negative effects on acceptable business practices and on the liquidity of the banking sector.

Treasury chief director of economic tax analysis Cecil Morden told the environmental affairs committee that the department of environment was working on mandatory reporting requirements of emissions for economic sectors which will begin in January next year. This will assist in the verification of self reported greenhouse gas emissions for the purpose of determining the entity’s carbon tax liability.

In terms of Treasury’s carbon tax proposals a carbon tax of R120 per ton of CO² emissions above the suggested thresholds will be imposed from mid-2016 with annual increases of 10% until 2019/20. A basic tax-free threshold of 60% is proposed with additional relief for specific sectors with the overall tax-free allowance for an entity being capped at 90% of actual verified emissions.

Tax-free thresholds will be reduced between 2020 and 2025 and could be replaced with absolute emission thresholds thereafter.

"Several studies have been undertaken to estimate the impact of carbon pricing in SA," Mr Morden said.

"Generally the carbon tax will result in emission reductions and depending on the revenue recycling assumptions the impact on economic output growth will be neutral to a small negative."

He noted that 53.2% of the submissions received on the carbon offset scheme outline in the carbon offsets paper supported it, 40.3% supported it but proposed amendments and only 6.5% argued that it should be scrapped.

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